Archive for 2009



cost cuttingCourtesy of The Pragmatic Capitalist

At the end of the day it’s still earnings that matter most.  As the expectation ratio has shown, the stock market has remained resilient primarily due to the fact that expectations for earnings have become very low and more corporations are outperforming the low hurdles.   But a look under the hood has shed some light on the true strength of these earnings.   We’ve seen a common trend of late.  Companies are missing top line estimates and handily beating bottom line estimates.  The two most recent examples of this phenomenon were RIMM and FedEx.  72% of the S&P 500 reported revenues that were lower than the same quarter last year.  As corporations shed workers and other costs they’re actually able to outpace their revenue declines with cost cuts.  While we’re still seeing very weak revenues figures (which is representative of the weak economic landscape) we’re actually seeing some margin stabilization and subsequently better than expected bottom line growth.  This chart from JP Morgan shows the trend at hand:


GDP is expected to climb substantially this quarter.  We’re also seeing some stabilization in overall economic productivity.  Meanwhile, on the cost side we’re continuing to see very low levels of hiring, low labor costs, low business spending and inventories.  Revenues are down just 17% for the overall S&P 500 on a year over year basis, but as you can see in the following two charts spending and inventories have nosedived:


As JP Morgan notes, there is no evidence that this is sustainable or positive for the markets in the long-term though:

Corporate defense of profits and financial standing, that is continuing in the current quarter, is apparently being rewarded in the credit markets. Corporate spreads over Treasuries and corporate bond yields have continued to decline in the past several weeks even as other longer-term market interest rates were rising.
The implications of corporate financial performance for economic growth over the coming year is uncertain. Business will emerge from recession in better financial health than compared to exits from past recessions, and with internal funds running well above capital spending. These conditions might argue for a relatively robust corporate expansion.

But for this to happen, the extreme caution that produced these financial results has to change. And there is no

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Courtesy of The Pragmatic Capitalist

Like Steven Leuthold, Prechter is expecting a short-term correction followed by a resumption of the rally:




Flow of Funds Report Offers Hard Evidence of Deflation

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Flow of Funds Report Offers Hard Evidence of Deflation

Courtesy of Mish

I am not sure if this was his intent, but recent analysis of the Flow of Funds Report by Martin Weiss eloquently makes the case for deflation.

In New, Hard Evidence of Continuing Debt Collapse! Martin Weiss Writes …

While most pundits are still grasping at anecdotal “green shoots” to celebrate the beginning of a “recovery,” the hard data just released by the Federal Reserve reveals a continuing collapse of unprecedented dimensions.

It’s all in the Fed’s Flow of Funds Report for the first quarter of 2009, which I’ve posted on our website with the key numbers in a red box for all those who would like to see the evidence.

First and foremost, the Fed’s numbers demonstrate, beyond a shadow of a doubt, that the credit market meltdown, which struck with full force after the Lehman Brothers failure last September, actually got a lot worse in the first quarter of this year.

click on chart for sharper image

Open Market Paper: Instead of growing as it had in almost every prior quarter in history, it collapsed at the annual rate of $662.5 billion. (See line 2.)

Banks lending: Credit markets [collapsed] at the astonishing pace of $856.4 billion per year, their biggest cutback of all time (line 7).

Nonbank lending: (line 8 ) pulled out at the annual rate of $468 billion, also the worst on record.

Mortgage lenders: (line 9) pulled out for a third straight month. (Their worst on record was in the prior quarter.)

Consumers: (line 10) were shoved out of the market for credit at the annual pace of $90.7 billion, the worst on record.

The ONLY major player still borrowing money in big amounts was the United States Treasury Department (line 3), sopping up $1,442.8 billion of the credit available — and leaving LESS than nothing for the private sector as a whole.

Bottom line: The first quarter brought the greatest credit collapse of all time.

Excluding public sector borrowing (by the Treasury, government agencies, states, and municipalities), private sector credit was reduced at a mindboggling pace of $1,851.2 billion per year!

And even if you include all the government borrowing, the overall

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Trucks Sit Idle; Rail Traffic Horrific

Courtesy of Mish

Trucks Sit Idle; Rail Traffic Horrific

The weekly Railfax Rail Carloading Report still looks grim. Here are a couple of charts.

Total US Rail Traffic

click on chart for sharper image

Total Industry Charts (US, Canada and Mexico)
Year over Year Percent Change – 13 Week Rolling Averages

click on chart for sharper image

13-week moving averages are still moving lower, with no apparent end in sight. The first chart shows the one relatively bright spot is coal. I hear the same message about coal from trucker friends.

Idle Trucks

"TF" writes:


I travel a number of routes regularly with my job and one site I pass amazes me. It is a local trucking company property. In early summer 2008 there were maybe 100 total trucks and trailers. Today, there is not much room left in a 12 acre area with 100s for trucks and trailers can not guess the number of trailers stacked 3 to 4 high.
I had heard through a trailer dealer that this trucking company solely purchased equipment to move wind energy projects for a number of years and this year canceled all equipment orders.

I also pass by a switchyard for a BNSF line between Seattle and Chicago once a month. The switchyard is a transfer point for the main line to a local. Freight would wait until there was an opening on the local line or an available engine. Prior to July/August 2008 the yard would have various car carriers, containers and other freight along side the coal cars destined for the power plants. Today only the coal cars are parked there. There is no waiting, except for coal.


Competition Intense

FleetOwner is reporting Truck Freight Down Until 2010.

Truckers larger and small will need to keep their belts tightened into the early part of next year before they can expect to see freight volumes start increasing, according to the latest industry analysis compiled by FTR Associates.

In a conference call with reporters last week, FTR analysts noted that for freight to start recovering, it must "reach a bottom first" and they predicted the bottom will be reached in the third to fourth quarter of this year. That will lead to a recovery in freight volume to begin sometime in the first quarter of 2010.


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Toyota Set To Become Top Dog In The U.S.

Courtesy of Tom Lindmark, But Then What?

Toyota Set To Become Top Dog In The U.S.

Depending upon your philosophical bent, this is either good news or another sign that the Apocalypse is Top Dog, Toyotanear.

The WSJ is reporting that Toyota is slated to take over the title as the number 1 seller of light vehicles in the U.S.

The bankruptcies of General Motors and Chrysler are changing the landscape of the auto industry. The two U.S. companies are shuttering plants, shedding dealers and reducing their product lines.

As a result, Toyota Motor will become the largest seller of light vehicles in the U.S. It has held the top spot globally since last year.

The Japanese auto maker won’t be the only beneficiary of the two companies’ woes. But in terms of status, market clout and bragging rights, Toyota will be the No. 1 winner.

Its share of the North American light-truck and car market probably will rise to around 20% from 18.4%. GM will end up in second place with 13% to 16% — with Ford hot on its tail.

Although Toyota stock doesn’t change hands directly in the U.S., the company’s American depositary shares (TM), which represent them, are listed on the New York Stock Exchange.

And, at a recent price of around $76 — about $30 below their 52-week high — they’re a good bet for long-term investors.

The Journal suggests that the stock might be a good long-term buy. They point out that analysts suggest it could hit $115 and that it hit $137 a couple of years ago. Maybe, but just a caveat. Toyota and others now have the most fearsome of competitors  – government owned companies. In the long run that probably means success for the competitors as political decisions trump business common sense. In the short run it could be formidable as the government does whatever is necessary to prove it didn’t make the stupid decision that everyone acknowledges it did.

Buy the stock at your peril.

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The obtuseness of macroeconomics

Courtesy of Benign Brodwicz’s The Animal Spirits Page 

The obtuseness of macroeconomics

By Benign Brodwicz

Consider The Economist’s Romer roundtable:  Debt will keep growing.

Not one macroeconomist acknowledges what I believe to be the true cause of the current collapse of effective demand, the extreme skewness of the income distribution and the attendant indebtedness and inability to spend at previous levels of the bottom half or better of the household income distribution.  My reference rant on this subject is here.  [Read the rant too, it's a good one. - Ilene]

The macroeconomists keep talking about “monetary stimulus” and “fiscal stimulus” as if they’re talking about stepping on the accelerator of a gasoline internal combustion engine.  Except that the engine is running on one cylinder, and if they “prime” the engine, all the gasoline is only going to fire on one cylinder, the one that’s getting the gas—in terms of this metaphor, the rich folks at the top of the currently neo-feudal pecking order.

The fiscal and monetary stimuli of the Great Depression failed to make the income distribution more equal, and failed to reduce unemployment to reasonable levels.  Most households weren’t participating in the flow of income to a sufficient degree for that to happen.

It’s time for the policymakers to realize that the economy is in the middle of a vast transition from a debt-financed consumption-heavy economy to one that is higher saving and more investment oriented.  That’s a big change, one that will take years.  Businesses aren’t going to want to invest in capital formation for consumer markets when they won’t know what the prospective returns are until we burn off some of our excess capacity and consumption patterns stabilize, in sum and in composition, in some new configuration. 

It took World War II to equalize the American income distribution last time, a frightening thought.  I have no idea what it will take this time.

The best macroeconomic policy right now, and the only one we can afford, is to provide honorable workfare to the growing ranks of the unemployed—in part so that they do not become radicalized and alienated from America—and health benefits so that we don’t compound the losses of the current slump with avoidable sickness.

John Maynard KeynesMacroeconomics in toto—the academic work plus the way it has entered policy—is

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Behind the Sense of Urgency

Michael Panzner introduces a post from Prudent Investor on price inflation in food prices, featuring a chart from the Economist comparing different countries. 

Behind the Sense of Urgency

By Michael Panzner at When Giant’s Fall

In yesterday’s post, "A Hunger for Food Security," I highlighted an article detailing the global scramble to acquire farmland and bolster food security.

Another post published today at the Prudent Investor Newsletters blog, "Chart: Global Food Price Inflation," points to a report in The Economist that might help explain the sense of urgency driving at least some of those efforts.

Inflation’s impact is always relative. And it can be seen in food prices across different nations.

Economist's chart on food inflation

According to the Economist,

"Changes in global food prices are affecting some countries much more than others. Despite a big fall from peaks in 2008, food-price inflation remains high in places such as Kenya and Russia. In China, however, falling international commodity prices have been passed on to consumers faster. The price of food, as measured by its component in China’s consumer-price index, rose by more than 20% in 2007 but fell by 1.9% in 2008 and by a further 1.3% in the past three months alone."

Of course, there are also many factors that gives rise to these disparities, aside from monetary and fiscal policies (taxes, tariffs, subsidies, etc…), there are considerations of the conditions of infrastructure, capital structure, logistics/distribution, markets, arable lands, water, soil fertility, technology, productivity, economic structure and etc.

Our concern is given the present "benign state of inflation", some developing countries have already been experiencing high food prices, what more if inflation gets a deeper traction globally? Could this be an ominous sign of food crisis perhaps?

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7 Steps To 40% Annual Returns

Just a couple of decades ago it would have been almost unfathomable for the retail investor to consider generating consistent returns above 20% per year.  Indeed, those who competed in arguably the most competitive financial market place, the stock market, were considered gurus when they beat the S&P 500 year in and year out

Others, such as Jerome Kohlberg, Henry Kravis and George Roberts made a name for themselves in private equity as did Peter Peterson and Stephen Schwarzman with the Blackstone Group.  Gains in the stock market for Joe Public were subjected to a limiting factor – the inability to leverage substantially.  Joe Public was also limited in participating in private equity investments; they were the domain of the rich – the insiders.  These days, private equity still remains the domain of the rich, but leveraging is possible through the purchase of equity derivatives.  And the sale of those same equity derivatives can be highly profitable too.

Whereas it would have been unthinkable years ago to consider making big profits year in and year out on a stock that doesn't move much – because the only source of income, dividends, tended to be in the low single digits in percentage terms - these days options afford us the opportunity to sit tight and profit while holding stock positions.  This can easily be achieved through the sale of short call options against stock holdings, otherwise known as the Covered Call strategy.  While the Covered Call strategy may appear straightforward when first encountered, many applications may be employed.  In this article, we will consider the application that Stock and Option Trades labels: 7 Steps to 40% per year!

Step 1:  Wait for a selloff

Ok, so you want to skip this step and move on to Step 2.  Wait! 

One of the great quotes in investing comes from Jesse Livermore and pertains to this concept of patience.  In Reminiscences of a Stock Operator, it is stated: 

"It never was my thinking that made the big money for me. It always was my sitting.  Got that?  My sitting tight!  It is no trick at all to be right on the market.  You always find lots of early bulls in bull markets and early bears in
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Telling a Similar Story

Here’s a couple more articles one on the lack of evidence for a turn around and one on China, wrapped into a single post by Michael Panzner at Financial Armageddon.

Telling a Similar Story

Handy Manny Visits Kids At USO General MacArthur Center For Storytime

Below are two seemingly unrelated articles that tell a similar story: talk that the global economy is on the upswing seems to be premature, to say the least.

In the first report (hat tip to Calculated Risk), the Vice Chairman of General Electric, a company with 14 major lines of business — appliances, aviation, consumer electronics, electrical distribution, energy, business finance, consumer finance, healthcare, lighting, commercial and industrial markets, media & entertainment, oil & gas, rail, and security — and a presence in more than 100 countries, states point-blank that they are not seeing evidence of the turnaround that policymakers (e.g., Fed Chairman Ben Bernanke), clueless Wall Street types (see: "The Wall Street Clown Show"), and TV pundits keep referring to.

The second article by well regarded analyst Andy Xie (hat tip to Naked Capitalism) is even more interesting, because it doesn’t just undermine the notion that China is on the mend — bolstering arguments I made previously in "Holes in the China Recovery Story" — and poised to kick-start a global economic recovery. It also raises questions about the recent sharp run-up in commodity prices, which many analysts say is a reflection of improving economic conditions but which seems to stem from a combination of technical buying and debt-financed speculation.

1. "GE Vice Chair Rice Sees No ‘Green Shoots’ in Orders" (Bloomberg):

General Electric Co. Vice Chairman John Rice said he isn’t seeing an increase in orders even as U.S. economic statistics suggest the world’s largest economy may soon shift to a recovery.

“I am not particularly of the green shoots group yet,” Rice said today to the Atlanta Press Club, referring to a phrase used by Federal Reserve Chairman Ben S. Bernanke that described signs of a nascent recovery. “I have not seen it in our order patterns yet. At the macro level, there may be statistics suggesting the economy is starting to turn. I am not seeing it yet.”

GE is the world’s biggest maker of jet engines, power-plant turbines, locomotives, medical imaging equipment. Rice oversees the Fairfield, Connecticut-based company’s industrial businesses.

“We see a world

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China: Economic Catastrophe Unfolding

China: Economic Catastrophe Unfolding

china real estateBy Terence Doherty, guest author

Here’s some recent news about the real estate markets in China. I think it is fascinating watching how these things unfold. This proves once again that the lesson of history is that we don’t learn the lessons of history.

I predicted over 2 years ago that the Chinese stock markets would implode dramatically, much to everybody’s disbelief and skepticism. It began a few months sooner than I thought, but, that is exactly what has happened. Now for the last year or so, I have predicted that things will get VERY bad in the Chinese real estate markets over the next several years. Again, most people I have talked to about this (especially Chinese) have almost universally dismissed this notion as absurd.

But this is not just a guess.  When you read these articles, you will see just some of the evidence that leads me to this conclusion. There are a lot of data on this, and most of it comes from statistics issued by various Chinese government agencies. But it is not advertised by the mainland press or TV.   So, many Chinese are not at all aware, and think that everything will soon be wonderful, because that is pretty much what they constantly hear from the official media.

That is one thing I noticed immediately about China: there is a constant barrage everywhere you turn—-TV, advertisements, magazines, newspapers, billboards, etc.—-that essentially suggests that everything is wonderful and getting more wonderful all the time, and everybody is just happy, happy, happy, and China is getting better and better and stronger and stronger.  I was really struck by this. It was like living in a never-ending infomercial. Maybe some go to China and are not very aware of this, but to me it was like a constant din.

Actually, at least some of this data is readily available on the mainland. But it requires digging.  The official news agencies like Xinhua and the People’s Daily just keep repeating the same mindless mantra in endlessly varying ways every day: “Everything is good, there are only a few small little problems, but the Motherland is unstoppable and will just get mightier and mightier.” If the Falun Gong would just chant that mantra, they would get to keep their organs and they would have no more problems in China. 



The news here…
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Zero Hedge

Paul Craig Roberts Roars "Rigged Elections Are An American Tradition"

Courtesy of ZeroHedge. View original post here.

Authored by Paul Craig Roberts,

Do Americans have a memory? I sometimes wonder.

It is an obvious fact that the oligarchic One Percent have anointed Hillary, despite her myriad problems to be President of the US. There are reports that her staff are already moving into their White House offices. This much confidence before the vote does suggest that the skids have been greased.

The current cause celebre agai...

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What Millennials Reject Is Mutant Capitalism

By The Foundation for Economic Education. Originally published at ValueWalk.

It’s not exactly news that capitalism has an image problem. Say the word “capitalist” and the image that comes to mind is of a rapacious, self-interested robber baron – less Steve Jobs or Warren Buffett, more Charles Montgomery Burns.

Among young people, the problem is even more severe. For the generation who came of age during the financial crisis, argues George Koopman of the Mercatus Centre in the Wall Street Journal:

“…capitalism isn’t about free enterprise, nor is it about the startups and innovation. When they hear the term, millennials think about Wall Street bailouts, corporate greed, political scandals and tax codes riddle...

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Phil's Favorites

Another Lehman Blunder Coming Up?

Courtesy of Mish.

Telegraph writer Ambrose Evans-Pritchard says the Fed risks repeating Lehman blunder as US recession storm gathers.

The key problem with Pritchard’s superficial analysis is the Lehman bankruptcy is about the only thing the Fed got right.

Liquidity is suddenly drying up. Early warning indicators from US ‘flow of funds’ data point to an incipent squeeze, the long-feared capitulation after five successive quarters of declining corporate profits.

Yet the Fed is methodically draining money through ‘reverse repos’ regardless. It has set the course for a rise in interest rates in December and seems to be on automatic pilot...

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Market News

Morning Reads from Bill Moyers


Morning Reads: McCain Tells Trump to Respect Democratic Process; Hurricane Matthew Was 6th Thousand-Year Storm in 1 Year

This post first appeared on

Doubling down --> Donald Trump says he will accept the result of the election... if he wins it.

The GOP is largely silent on their candidate's unprecedented anti-democratic stance — with a few ...

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Kimble Charting Solutions

Bio-Tech; In more trouble if this fails, says Joe Friday

Courtesy of Chris Kimble.

At one point in time, actually for years, Bio-Tech (IBB) was a market leader. From the 2009 lows to 2015, IBB out gained the S&P by more than 250%. Since the summer of 2015, Bio Tech has remained a leader, a “downside leader!” IBB has lagged the S&P by over 35% in the past 15-months.

Is the downside leadership over for IBB? Below updates the pattern on IBB


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Chart School

SP500 Status Pre US 2016 Elections

Courtesy of Read the Ticker.

Where have we been, what does the future look like?

More from RTT Tv

NOTE: does allow users to load objects and text on charts, however some annotations are by a free third party image tool named

Investing Quote...

..."There is what I call the behaviour of a stock, actions that enable you to judge whether or not it is going to proceed in accordance with the precedents that your observation has noted. If a stock doesn’t act right don’t touch it, because, be...

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Members' Corner

The Orlando Massacre Part 3

Courtesy of Nattering Naybob.

A continuation of a Naybob of IT's Natterings from Part 1 and Part 2...

While many Christian churches expressed grief and offered free funeral services for the victims of the Orlando shooting, the fundamentalist Westboro Baptist Church held an anti-gay protest during the funeral of the victims.

But the Westboro Baptist Church's protest rally was blocked by about 200 people who formed a human barricade on the main street in downtown Orlando, ...

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Swing trading portfolio - week of October 17th, 2016

Reminder: OpTrader is available to chat with Members, comments are found below each post.


This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...

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Mapping The Market

The Most Overlooked Trait of Investing Success

Via Jean-Luc

Good article on investing success:

The Most Overlooked Trait of Investing Success

By Morgan Housel

There is a reason no Berkshire Hathaway investor chides Buffett when the company has a bad quarter. It’s because Buffett has so thoroughly convinced his investors that it’s pointless to try to navigate around 90-day intervals. He’s done that by writing incredibly lucid letters to investors for the last 50 years, communicating in easy-to-understand language at annual meetings, and speaking on TV in ways that someone with no investing experience can grasp.

Yes, Buffett runs an amazing investment company. But he also runs an amazing investor company. One of the most underappreciated part of his s...

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Digital Currencies

Gold, Silver and Blockchain - Fintech Solutions To Negative Rates, Bail-ins, Currency Debasement and Cashless

Courtesy of ZeroHedge. View original post here.

By Jan Skoyles

I was so pleased yesterday by the announcement that I have joined the Research team at GoldCore as it meant that I could finally start talking about it and was back in a role that lets me indulge in my passion by researching and geeking out on all things gold, silver and money.


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Epizyme - A Waiting Game

Reminder: Pharmboy is available to chat with Members, comments are found below each post.

Epizyme was founded in 2007, and trying to create drugs to treat patient's cancer by focusing on genetically-linked differences between normal and cancer cells. Cancer areas of focus include leukemia, Non-Hodgkin's lymphoma and breast cancer.  One of the Epizme cofounders, H. Robert Horvitz, won the Nobel Prize in Medicine in 2002 for "discoveries concerning genetic regulation of organ development and programmed cell death."

Before discussing the drug targets of Epizyme, understanding epigenetics is crucial to comprehend the company's goals.  

Genetic components are the DNA sequences that are 'inherited.'  Some of these genes are stronger than others in their expression (e.g., eye color).  Yet, some genes turn on or off due to external factors (environmental), and it is und...

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All About Trends

Mid-Day Update

Reminder: Harlan is available to chat with Members, comments are found below each post.

Click here for the full report.

To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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PSW is more than just stock talk!


We know you love coming here for our Stocks & Options education, strategy and trade ideas, and for Phil's daily commentary which you can't live without, but there's more! features the most important and most interesting news items from around the web, all day, every day!

News: If you missed it, you can probably find it in our Market News section. We sift through piles of news so you don't have to.   

If you are looking for non-mainstream, provocatively-narrated news and opinion pieces which promise to make you think -- we feature Zero Hedge, ...

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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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